It Is Good To Go For An Education Loan For Your Child. Here’s Why

As college admissions near, parents start to worry. How anxious they get may depend on the field of education their children wish to explore and how much that will cost, but it often has to do with how their child will manage on their own, especially if admissions are in a different city or country.

It is common for parents to stretch themselves financially to make the dreams and aspirations of the child come true, and feel guilty if they fall short or are unable to do so.

Paying for college is perhaps the most expensive financial commitment during any child’s growing-up phase. Whether you wish to fully fund your child’s education or consider partly financing it, there is plenty of hope as well as benefits in opting for an education loan. Here are six reasons to go for an education loan for your child.

Financial Responsibility

As much as your child may be worldly wise and intelligent, there is hardly any exposure to managing money taught in a formal way. By taking an education loan that you may be repaying, they do get involved in understanding how an education loan works and what their education costs. Your child may understand the effort that goes into earning money and value the education cost and stay grounded.

Living on a Budget

When kids know they have a loan, chances are they will be prudent and stick to a budget to manage their education expenses. The habit of making a budget and living within it will help your child manage cash flow under changing circumstances, which can go a long way in making them financially sound in their lives.

Credit History

Student loans have a long repayment schedule, and the repayment is a good way to build a credit score that is so important for future loans and even certain types of jobs. By building a good, regular repayment habit, your child will become financially prudent and also be confident to take other loans to realise other financial goals in life.

Continuing Education

The education loan is not paid out in lump sum and is not paid to the borrower. The sanctioned loan is released to the education institution directly by the lender. Moreover, fees for the course are paid each semester or year by the lender only when the student makes progress. With a loan to fund the education and also linked to academic progress, your child is likely to take education seriously and not even consider dropping out.

Managing Your Finances

If you are financially stretched with your other financial goals in life, the education loan is a boon. It ensures that you are not dipping into your savings to fund your child’s education. Education loans can help you fund college for your child, and the moratorium available on loan repayment can buy you time to help repay the loan.

Tax Benefit

Education loans come with tax savings on repayment, especially on the interest paid during the year on qualified loans. Under Section 80E, individual borrowers are eligible for tax deductions when the education loan is taken from recognised banks and NBFCs. As your child starts repaying the loan, they can claim income tax deduction on the interest component for up to eight years. This is a good way to reduce your tax outgo, especially once you start earning and fall under the income tax net.

With education loans available under the priority sector, it is a good alternative to consider instead of dipping into one’s savings, especially retirement savings. Parents can use the opportunity that comes with education loans to not just fund their child’s education but also gain from other benefits that come along.

Narayan Krishnamurthy is a believer in financial literacy and awareness, and works on promoting both. For the past two decades he has been writing to simplify personal finance. He also works as a personal finance trainer.